Financial incentives – a potent weapon for higher productivity

Abstract

Purpose

This paper, in fact is the saga of turnaround of an ailing PSU plant, which in spite of all kinds of improvements measures taken up by the Company had never seen productivity beyond 65 percent of installed capacity. The purpose of this paper is also to showcase the amazing power of financial incentives in enhancing productivity, if rightly designed. On the other hand, it will also serve a lesson of caution to the users by highlighting the extent of damages what a faulty incentive plan can cause.

Design/methodology/approach

The methodology of Lean Six Sigma helped analyzing and improving the problem and tools like “Fishbone diagram” and “Analytical Hierarchy process” were very handy in identifying root causes for this complex problem and prioritization of those, respectively.

Findings

Root cause of low productivity being identified as “demotivated workforce on account of poor incentive earnings”, the existing financial incentive plans were given a relook. LSS tools like SIPOC, “heijunka”, “brainstorming” etc. were applied for revealing critical faults in the existing financial incentive schemes. Some unorthodox and very common methods were adopted in modifications and implementation of incentive plans.

Research limitations/implications

Modification of incentive scheme involving labor union bargain is commonly resisted by both the parties, i.e. labor unions as well as the management. Although their interest behind the same remains different. One fears to loose, while other is afraid of conceding more. This case study was not an exception too.

Practical implications

Expecting resistances, a good and thorough Shadow working with all kinds of “extremities tests” were prepared. This along with complete transparency followed by well explanations made both the parties happy. Accordingly, the modified incentive plans were agreed upon and subsequently were approved by the management for implementation. Few other remedies and countermeasures suggested were also implemented.

Social implications

The entire workforce was extremely happy and highly motivated. Provisions of equal incentive weightage with ample individual scope of earnings for both rival production groups in the modified incentive scheme successfully converted the inter-group hatred into healthy completion. Both the groups were gearing for much higher performance and earn more. Self-motivations were turned into group motivation, which is always a blessings for any incentive scheme.

Originality/value

Post-implementation period results were extra ordinary and unprecedented. Productivity was significantly enhanced to 15 percent in first six months, which increase up to 39 percent next year. Customer order and quality fulfillment met for the first time, relieving the management from great embarrassment. The annual incremental financial gain was more than Rs 1,000 millions. The methodology of identification of the root causes and the unique style of finding the solution are original in nature and would be helpful and guide for students, professionals of financial incentive designers, industrial engineers, managers and entrepreneurs.

Citation

Ghosh, S.S. (2017), "Financial incentives – a potent weapon for higher productivity", International Journal of Productivity and Performance Management, Vol. 66 No. 4, pp. 554-571. https://doi.org/10.1108/IJPPM-02-2016-0040